Government schemes for first-time homebuyers and existing homeowners
Struggling to get a foot on (or up) the property ladder? Here's our simple round up of government schemes that could provide just the boost you need.
Being a first-time buyer can often mean paying rent, saving for a deposit and keeping up with house prices all at the same time – no easy feat.
But there's good news too.
As well as a stamp duty break on the first £300,000 of all homes worth up to £500,000, the Government offers a range of homebuying schemes aimed at first-time buyers, as well as existing homeowners looking to move up the ladder.
Here's a round-up of each scheme and how it works.
Help to Buy Equity Loan
Help to Buy Equity Loan is the only arm of Help to Buy that is still available. The scheme requires you put down a minimum 5% deposit of the property value, with the Government offering an interest-free loan of a further 20%. The remaining 75% is covered by a standard mortgage.
Help to Buy mortgages are offered by most major lenders including Santander, Barclays and Halifax, as well as some smaller building societies such as Teachers and Newbury.
For example, on a £200,000 property, you'd need a minimum deposit of £10,000 and the means to qualify for a mortgage of £150,000. The Government would then plug the gap with an equity loan of £40,000.
How the equity loan works
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There is no interest to pay for the first 5 years
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In year 6, interest (known as a 'loan fee') kicks in at 1.75%
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The rate increases every year thereafter at the RPI (retail prices index) measure of inflation plus 1%
Repaying the equity loan
The Government will take back its 20% share of your home, whether that's at a profit or loss, either when you sell or at the end of the 25-year mortgage term if you decide to stay.
You can opt to repay the loan before this but only in minimum 10% increments of the property's current market value. This is known as staircasing. The Help to Buy Equity Loan scheme is only available on new-build properties in England worth up to £600,000 until March 2021.
The Government has confirmed that a new Help to Buy scheme will launch in April 2021 when the current scheme closes, and will run for two years. However, this will be limited to first-time buyers only and price caps will be regional.
Help to Buy ISA
A Help to Buy ISA is designed to boost first-time buyers' savings pots. For every £200 you save into the account, the Government will add £50. This is up to a maximum bonus of £3,000 (which would apply to £12,000 of savings).
However, note that the Help to Buy ISA bonus cannot be put towards the initial deposit payable at exchange. Instead, the tax-free lump sum will be paid directly to the mortgage lender at completion. In other words, you'll have to save the initial deposit yourself and use the bonus to reduce the mortgage you require, and subsequent monthly repayments.
There are other limitations too, such as a £250,000 price cap on property the bonus can be used to buy, rising to £450,000 in London. A Help to Buy ISA is a cash ISA, and you are only permitted to pay into one cash ISA in each tax year.
However, you will be able to use your Help to Buy ISA savings in conjunction with any other Government scheme such as Help to Buy or Shared Ownership. Banks and building societies offer their own Help to Buy ISAs and interest rates vary, so shop around. Help to Buy ISAs are only open to new applicants until 30 November 2019.
Lifetime ISA
The Lifetime ISA offers a tax-free boost of up to £1,000 a year towards either buying your first home or saving towards retirement. Savers aged under 40 can open one of these accounts and put away up to £4,000 each year. The Government will then boost returns by 25p for every £1 saved and pay the bonus directly into the account.
You can opt to use your Lifetime ISA as a deposit on a property worth up to £450,000 anywhere in the UK, so long as you are a first-time buyer. You will be able to transfer your Help to Buy ISA balance into your Lifetime ISA without losing the tax-free benefits.
Starter Homes scheme
Starter Homes is a government initiative that aims to provide up to 200,000 affordable new-build homes to first-time buyers in England.
These homes will be limited strictly to first-time buyers aged between 23 and 40 and sold at a minimum discount of 20% of the market price. Price caps will be set at £250,000, or £450,000 in London.
Shared Ownership
Shared Ownership schemes allow you to purchase just a share of a home (between 25% and 75%) from a local Housing Association and pay an affordable rent on the part you don't own. You'll then be given the chance to buy further chunks of the home as and when you can afford it, under what's known as 'staircasing' until you own 100%.
These chunks will be priced at the home's current market value as assessed by the respective Housing Association. You will also have to pay a valuer's fee each time.
To qualify for Shared Ownership, you don't have to be a first-time buyer but your household income must not exceed £80,000, or £90,000 in London. The scheme is available on both new-build and resale properties.
Right to Buy
Right to Buy enables council tenants with at least three years’ consecutive years tenancy to potentially buy their home at a significant discount. You can find out if you are eligible for the scheme at the Government's website.
Maximum discounts available (2019/2020) stand at £82,800 in England or £110,500 in London. These increase at the start of each tax year in line with the CPI measure of inflation.
Stamp duty
Finally, don't forget to factor in stamp duty which is payable on all primary homes worth over £125,000.
However, if you (and any other joint buyer/s) are non-homeowners and have never owned or part-owned a home previously (in any part of the world), the first £300,000 is exempt from stamp duty, up to a maximum value of £500,000.
This means if the home costs £300,000 your stamp duty bill will be zero. If it costs £500,000, your stamp duty bill will be £10,000, opposed to the previous £15,000.